What is the worst word in the marketer’s lexicon? To me, it’s “discounting,” a word that is defined as “cutting the price,” but really means “incenting someone to buy your product/service solely based on price because there aren’t any motivating value-added reasons to do so.” (From the Zipatoni dictionary of marketing terms.)
This includes most conventional trade deals and couponing, generally the largest piece of the marketing pie. Pull out your brand budget and add up the dollars spent to discount your brand. More than 50 percent? More than 70 percent? If so, your brand is a solid candidate for discounting rehab. We wouldn’t suggest going cold turkey, though. Most of the time, that’s fatal. The business craters, share plummets, you get the shakes and the sweats really bad. Your boss ends up institutionalizing you.
If discounting makes up for only 20 percent of your budget, you are indulging responsibly. Just don’t get drawn in by the siren song of discounting and become wantonly addicted.
Discounting is bad for several reasons. First, many marketers don’t know where the most effective target price point is. At which point do you maximize sales at peak profitability? If you offer a 10 percent discount and get a 10 percent sales increase, you’ve made no gain. There is a chart that plots sales, price, and profit. Do you know what it looks like for your business? Discounting is a dangerous weapon in the hands of untutored marketers.
Second, discounting constitutes conventional marketing warfare -which is available to allcompetitors. When one competitor is dropping 50-cent coupons, and another escalates to 75 cents, and then another to $1, where does the insanity end? Discounting is that slippery slope to a life of crime and public (spending) drunkenness. Price war is hell.
Third, discounting causes marketers to focus on the wrong things. When all you’re doing is analyzing trade deals and tracking coupon redemption, you’ve turned your back on value-adding thinking. What is healthy for the brand is a constant search for good promotional and packaging ideas, ideas that stimulate the minds and souls of your target consumers instead of just padding their pocketbooks.
You could say, “cash is king” and “free is good,” and you’d be right. In our ongoing qualitative research with consumers of all types, we have found that consumers will pick money over other incentives ($5 cash wins over a free movie ticket) almost every time. But we aren’t dealing with rational thought processes for most brand purchase decisions, so our research is flawed. If free movie tickets enhance the perception of the brand (they are for a special celebrity premiere, for instance), then the movie tickets will have residual value beyond the purchase transaction.
Here are a few examples to ponder: McDonald’s and its 55-cent meal deal fiasco; the eyeglass companies and their constant buy-one-get-one-free offers; and family restaurant all-you-can-eat for $6.99 seafood specials. How do you feel about these businesses?
Heightened price sensitivity comes by training consumers to be price sensitive. They don’t train themselves. Marketers make brands and categories price-driven by doing at least one of three things: reducing the importance of the brand in consumers’ eyes, reducing the level of differentiation of the brand, and/or increasing spending on discounting, thus engaging competition in price wars.
The four-step program Step 1 in the methadone program is to seek discount-related offers, which don’t directly lower the price, but which do have a clear monetary value. Some of these are: volume discounts, extended terms, performance guarantees, new customer incentives, free goods, and frequent purchase. Implement these prudently in place of straight discounts.
Step 2 is to get educated about your brand. What does the Volume X Price chart look like. What’s the curve’s slope? Where are the inflection points? Where are the minimums and maximums? And, which brands are complements and substitutes? Under what conditions? Get with your market research resources and figure this out.
Step 3 is to define price’s place in the marketing mix. How important is it and how important does it need to be? If you don’t have anything else to sell, then you’ll always be selling on price. So find something else to sell. Zipatoni defines a brand as “purchased perceptions.” So what are the perceptions causing purchases on your business? If it’s mainly price, then you don’t have a very sturdy business.
Step 4 is to generate a range of value-adding ideas (promotion, packaging), from the way-out to the more conventional. Sensibly plot the implementation of these ideas over time, and stick with the plan.
Don’t be a price junkie. Get the discounting monkey off your back!